Thursday, January 16, 2014

Penny Wise and Pound Foolish Cuts to the IRS Budget

Multinationals of the world rejoice:

The Senate, by a vote of 72–26 on Jan. 16, passed the omnibus appropriations bill (H.R. 3547) to fund the federal government through fiscal year 2014. The bill now moves to President Barack Obama's desk for his signature. The House passed the appropriations bill Jan. 15 by a vote of 359-67. The legislation allocates $11.3 billion to the Internal Revenue Service, a decrease of $526 million, or 4.4 percent compared to the previous year's enacted level.

[Source: BNA]. Reducing the IRS budget allows multinationals to abuse transfer pricing in order to source less income in the U.S. I guess multinationals might be upset that some of our trading partners are increasing their transfer pricing enforcement. But as long tax rates abroad are lower than ours – particularly in those tax havens – allocating less of their profits here means lower effective tax rates. Of course, U.S. based multinationals must defer the repatriation of their profits at least until Congress decides once again to take the bone head move of offering another tax holiday on such repatriated profits. OK – we argued back in the Bush years that the repatriated profits would lead to more investment but we know the vast bulk of repatriated profits were paid as dividends to shareholders.